Crude price collapse continues as inventories build

1of2Workers at a special oil drilling rig that slides from one well to the next on a pad near Nordheim. In DeWitt County, the average well can be profitable with U.S. benchmark crude at $22.52 a barrel, $4 below the lowest level this year.Photo: New York Times file photo

2of2Pump jacks extract oil and gas from the Eagle Ford Shale at a pad off Texas 72 east of Tilden. On Thursday, U.S. benchmark West Texas Intermediate crude oil fell as low as $45.23 per barrel during the trading day before closing down 26 cents at $46.38.Photo: Jerry Lara /San Antonio Express-News

West Texas crude dropped to a fresh three-month low Wednesday as the nation’s energy stockpile swelled and another U.S. oil producer filed for bankruptcy protection, the sixth to fall in this year’s oil slump.

Meanwhile, a Wall Street bank said this week that cheap oil has done more bad than good for the national economy because oil-industry layoffs are outweighing consumer savings on gasoline.

Prices fell Wednesday after federal crude inventory data showed large increases in jet fuel, distillates, gasoline and other refined petroleum products in storage. Raw crude stocks fell by 4.3 million barrels the week of July 10, a much bigger draw than expected, but the nation’s crude stockpile came in 23 percent larger than it was the same time last year.

The Energy Information Administration’s data piled onto several market indicators keeping pressure on crude prices this month, including a deal to let Iran sell oil to buyers worldwide and a flood of crude coming from Saudi Arabia and Iraq, said Christopher Main, an oil analyst at Citigroup. U.S. production has slipped in some big shale plays but appears resilient overall, slowing only a little so far.

“U.S. shale guys just aren’t throwing down,” Main said. Even with oil prices hovering just above $50 a barrel, “I don’t expect a big reversal, just a slower uptick in the rig count.”

The U.S. benchmark price dropped $1.63 on Wednesday to $51.41 on the New York Mercantile Exchange, its lowest point since April 9. Brent, the international standard, declined $1.46 to $57.05 on the ICE Futures Europe.

Goldman Sachs this week said the oil industry’s job cuts and drilling slump have showed up more clearly in U.S. growth data than savings at the pump. Falling oil prices typically boost the U.S. economy by putting more money in consumer’s pockets and spurring increased spending.

But the U.S. oil industry has become a major source of employment growth since 2009, especially in places such as West Texas and North Dakota. And a portion of the nation’s economic growth in recent years has come from the hydraulic fracturing and oil-field service companies that flushed out once untouchable oil and helped the United States greatly narrow the difference between its oil-related imports and exports, said Morgan Downey, an oil trader and author of “Oil 101.”

“In the past, oil was more something people would complain about when gas prices went up,” Downey said.

Goldman Sachs estimates that oil company budget cuts and lower investment levels have sliced out half of a percentage point from the nation’s gross domestic product growth in the first half of 2015 and job cuts in the mining sector, which encompasses oil and gas, are behind a fifth of the slowdown in job growth this year. Stalled drilling activity also caused about 40 percent of the slowed growth of industrial production over the last nine months.

The downturn, Goldman said, has been most pronounced in five petroleum-rich states — Texas, Oklahoma, New Mexico, North Dakota and Wyoming — where job growth outside of the energy sector has slowed dramatically because of the economic “spillover” effect of slower drilling. Job growth in those states went from an average 48,000 a month from October to December but fell to 4,000 a month from March to May

That’s roughly 36 percent of the decline in U.S. nonmining job growth this year. “The drag from the contraction in energy-producing sectors to the broader economy therefore looks sizable,” Goldman analysts wrote in a note to clients.

“That shock appears to be fading, and the positive effects of lower oil prices on consumption are starting to show through,” the analysts wrote, saying they expected the oil bust to be a net positive for the economy eventually. “The more concerning signal would be for the shale oil states themselves, as we cannot be sure that the knock-on effects from the drilling downturn are over.”

In Houston, the oil-market collapse consumed another oil company. Sabine Oil & Gas Corp. on Wednesday filed for Chapter 11 bankruptcy protection in New York and said low oil prices and high levels of debt left it no other option, even after it had cut costs and laid off workers.

The Houston firm, which drills for oil mainly in East Texas, had about 165 employees in July, down from nearly 300 at the end of last year. It was the sixth and largest bankruptcy filing by an American oil producer so far in 2015.

Besides Sabine, the other five U.S. producers to file for bankruptcy protection are Quicksilver Resources, Saratoga Resources, BPZ Resources, Dune Energy and American Eagle Energy Corp. Those companies had a combined 645 employees this year, according to the most recently available data.